Just after class finished today (at 2:00) the Fed released the notes from its most recent meeting. These indicated a less troublesome perspective on inflation than had been previously thought. As a result, inflation expectations dropped, pushing interest rates sharply lower. The chart below shows a 5-minute graph of the 10-year rate. Note the sharp decline at 2:00. If you look on a daily chart, you will see that we have now "breached" the prior up gap from a short time ago, and today's action saw the 10-year bounce off its 50-day MA.
Overall, this was an eventful day for the stock market. This morning, a record balance of trade deficit for FEBRUARY was released, sending stocks and the dollar lower, but strangely, the 10-year bond rate lower (so its price rose). Then came 2:00, a decline in inflation worries (and less agressive future rate hikes expected by the Fed), leading to a bond rally, then the price of oil dropped sharply. The Dow-Jones average went from about -80 to +59, a turnaround of almost 140 points on high volume.
For the day, the dollar ended higher, in spite of its rocky start with the release of the balance of trade deficit. If you graph $USD and annotate to include Fibonacci Retracement (the high of September 2004 and the most recent low in the beginning of this year, you will see the dollar caught in a trading range between support at 38.2% retracement and resistance at 50% retracement. We should see a breakout from this range pretty soon.
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